Transferring your UK pension plan to Canada Tax-Free

If you worked in the UK and have accumulated assets within a UK pension plan, you may be eligible to transfer those funds tax-free to Canada. There are some stipulations that should be considered if you are exploring this option, but this process can be straightforward and cost-effective - we would be pleased to guide you as we have done so successfully for other clients. Here are some high-level details.

 

A UK company pension plan may be able to be transferred to a Qualified Recognized Overseas Pension Scheme (QROPS) in Canada as long as the Canadian institution meets certain requirements outlined by Her Majesty’s Revenue and Customs (HRMC), which is the UK tax authority equivalent to CRA.

 

A QROPS looks and feels very much like an RRSP with similar rules, in that the assets benefit from tax-deferred growth and are ultimately transferred to a RRIF no later than the end of the year you turn 71. If you require an income stream earlier than age 71, you have the full flexibility to convert to a RRIF prior.

 

QROPS are specifically designed for people who are at least 55, now Canadian resident for at least 5 years, and who plan on retiring in Canada; as such, they also wish to have their pension assets denominated in Canadian Dollars going forward.

 

What UK pension plans can be transferred to Canada?

 

Defined Contribution (DC) plans, private sector Defined Benefit (DB) plans and fully funded public-sector DB plans can be transferred (UK government pensions cannot). DB pension plans over 30,000GBP, require the review and signoff of a UK financial advisor before a transfer can be made. We can assist you in this process.

Key Benefits

Grow Your Pension – Most pension plans provide you with a monthly income, and typically those income payments are increased annually by a certain small amount so as to offset the effects of rising inflation (such as 1% to 3% annual increase). When held within a Canadian QROPS, your assets are invested so that you have the potential to grow your investments at a much better rate.

Investment Flexibility – Within a QROPS, you have much more control and flexibility over your investment selections. You will have the option of owning various baskets of professionally-managed equity and bond funds, depending on your goals and appetite for risk. You even have options to own fully guaranteed investments as well.

Ease of Administration – Many people choose to consolidate their assets all with one financial advisory team, so that their investment choices are aligned with their overall financial and lifestyle goals. If you have more than one pension, you may be able to consolidate your pensions into one account for ease of administration, while at the same time knowing that your overall investment portfolio is working together for you.

Tax-Free Spousal Rollover – If you name your spouse as the beneficiary of your QROPS, the value of the account will be transferred to them tax-free (and probate-free) upon your passing. Tax is ultimately paid on the passing of the second spouse, but then the remaining amounts can then be paid out to your children or your estate as per your wishes. Compared to a UK pension, often there would be an amount paid to the surviving spouse by way of a reduced monthly pension (i.e. a 50% survivor pension) for the remaining life of the surviving spouse. Upon that spouse’s passing, typically there is no remaining amount paid to your children or estate.

Exchange Rates – When you transfer your UK pension to a Canadian QROPS, you will get a very competitive rate on the large lump-sum transfer of British pounds to Canadian dollars. Then the monies are invested in Canadian denominated assets so that you avoid any future currency fluctuations. Compared to a monthly pension received from UK, you would be subject to the monthly fluctuations of the exchange rate. As is the case, these monthly income amounts would not receive the most competitive exchange rates simply due to their relatively small amount.

Transferring your UK pension to a Canadian QROPS will not affect your RRSP contribution room. In other words, you do not need to have any available RRSP contribution room in order to consider transferring your pension.


The net effect of this process is a tax-free transfer to Canada, funds are then invested inside a QROPS and allowed to grow tax-deferred (like a conventional RRSP). Once income is drawn, Canadian income tax is declared (like a conventional RRIF). Our fully-qualified investment advisory team will guide you throughout the process and also guide your investment selections and estate planning wishes throughout retirement.